MSME Outlook: What lies ahead for the sector? Know positive factors analyst decodes

By Mr. Pankaj Sharma, CEO, Religare Finvest

MSME Outlook: The MSME sector has come under the lens since the pandemic brought the sector to its knees a couple of years back. The pandemic-induced restrictions brought their business to a standstill making it difficult for them to survive.

Nirmala Sitharaman, Finance Minister, made an impassioned appeal to the industry to support the SME sector at the recently organised Hero Mindmine summit.

Speaking on her Government’s behalf, she said, “For all the tears that we shed for the MSMEs, can we limit the time by which the MSMEs get their dues?”

It indicates the pain MSMEs continue to bear due to inordinate delays in receiving their dues and hence the urgency of bringing the MSME sector back on track.

Once the Covid-led restrictions eased, with limited liquidity at their disposal, they found it difficult to revive their businesses. The good news is that Covid seems to be in control now and after hitting rock bottom, the only way for the MSME sector is up.

Carrying them over the hill

Over the last two years, the Central Government has been making efforts to revive the MSME sector. Recently, it created a portal -- MSME Samadhan, for clearing the outstanding federal dues owed to the MSMEs.

Earlier in the year, the finance minister made a slew of announcements while presenting the Union Budget 2022, to facilitate credit access for the MSMEs. It included extending the Emergency Credit Line Guarantee Scheme (ECLGS), which is claimed to have provided additional credit to more than 130 lakh MSMEs, to March 2023.

Special provisions have been made for extremely distressed domains esp. the contact intensive sectors like tourism and hospitality.

Additionally, the Government would be revamping the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme with a fresh infusion of funds to facilitate additional credit of Rs2 trillion.

Additionally, the Government has taken measures to boost the credit availability for the sector. Through schemes such as Micro Units Development Refinance Agency Bank (MUDRA) and Credit Linked Capital Subsidy Scheme for Technology Upgradation (CLCSS), the Central government is helping the MSMEs with much-needed funds.

The steps to boost finance availability are being complemented by a predicted resurgence in demand.

Some good tidings

Electronics and chemicals are poised for a buoyant FY23. Mobile phones, white goods, etc., are riding high on expectations of a robust festive season. It will have a positive rub-off on the MSME space, which plays a significant role in assembling of consumer appliances and industrial electronic goods.

Similarly, the specialty chemicals industry, which sees many SMEs operating in the intermediate stage of production, is projected to rise around 14-17%. PLI scheme announced for specific sectors will further enhance business and revenues for MSMEs in these sectors.

The speedbumps

However, rising input costs are threatening to squeeze margins leading to lower realisations and unsatisfactory real growth figures. Also, supply chains are still not operating at optimal levels and uncertainties persist.

Loan recovery continues to be a cause of concern. The stressed assets ratio for the MSME segment, that measures the gross non-performing assets against the restructured assets, is projected to rise from 11.7% last year to 15.8% this financial year. Banks may continue to face challenges while recovering outstanding loans given to MSME businesses.

In addition, individual sectors face their own challenges. Real estate, for example, has slowed down in the past few years after a period of robust growth. Similarly, exports are also on a decline owing to contraction in demand from European countries. Geopolitical issues in West Asia are further queering the pitch for the MSMEs.

Time to press accelerator

Apart from the external ecosystem, the MSME universe has to internally embrace a growth mind set. Most MSMEs are content to remain small and stay in their comfort zone to escape regulatory scrutiny and higher taxation. With better access to credit and a resurgence in demand, the MSMEs have to now shed their lethargy and focus on growth rather than on merely staying afloat. MSMEs have been traditionally labour-intensive, especially in the manufacturing sector.

Going forward, entities will have to focus on automation and digitalisation. The sector has to be more outward-looking than inward. Rather than wanting to remain small and disorganised, businesses have to put their weight behind making it an organised sector and grow without restraints put in due to various regulatory/statutory dispensations on size.

The opportunities are immense. The traditionally robust MSME markets such as South Korea, Taiwan, Singapore, etc., have saturated. MSME entities there may feel the need to explore other markets for growth.

With a fast-growing middle-class and increasing internet penetration, India promises a mature market. These companies may be keen for local partnerships. While they may bring the technology and the knowledge, they will look to their Indian partners for ground support.

While challenges persist, opportunities also abound. A good festive season this year after two consecutive years of dampened festive spirits along with easing of supply chain issues would further complement the Central Government’s efforts and enable MSMEs to shake off a pandemic-induced downturn. 

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)